Sprott Physical Uranium Trust, the world’s largest fund holding actual uranium rather than futures contracts, is swiftly driving the commodity’s price upwards as it attempts to corner the market.
Investment firm Sprott Asset Management launched its Physical Uranium Trust earlier this year with the intention to buy and hold physical uranium ore. The trust listed on the Toronto Stock Exchange in July and as expected, spurred demand for physical uranium with the commodity’s price surging as a result.
Sprott’s website shows it has now accumulated more than 24 million pounds of uranium after a recent buying spree that has included purchasing more than 500,000lbs in a single day.
The fund then announced in a filing on Friday that it is increasing the amount available under its at-the-market equity program by US$1 billion (A$1.36 billion) to allow the uranium trust to raise up to US$1.3 billion (A$1.77 billion).
Sprott Asset Management chief executive officer John Ciampaglia said the amended amount will enable the trust to “continue to meet investor demand by issuing new units and actively accumulate physical uranium”.
“Our ‘at-the-market’ equity program has been very well received by investors. Since its launch [in August] the trust has issued 24.7 million units for gross proceeds of approximately US$244.7 million,” he said.
Meanwhile, uranium futures have skyrocketed above US$40 per pound (A$54/lb) for the first time in almost seven years, hitting US$42.50/lb (A$57.74/lb) last week.
Essentially what Sprott is doing is creating an artificial supply crunch and power utilities, fearing future higher prices, are rushing to the market which then leads to these higher prices they feared.
Uranium’s bull run
Other market dynamics are contributing to uranium’s recent bull run including the world’s largest uranium miner, Kazakhstan’s Kazatomprom, committing to extended production cuts through 2023.
Meanwhile, demand is getting stronger with data from the World Nuclear Association forecasting an increase to 162Mlbs this year, then 206Mlbs in 2030 and potentially up to 292Mlbs by 2040.
According to news reports, global mine supply is expected to be around 125Mlbs in 2021. The majority of production comes from Kazakhstan, Canada and Australia.
Furthermore, Japan’s former foreign minister and one of its leading candidates for prime minister, Fumio Kishida has declared the restart of mothballed nuclear power plants as a priority.
Another strong contender for Japan’s top spot is current vaccination minister Taro Kono, who in the past has been critical of nuclear energy. However, he also recently admitted that restarting dormant plants “that were deemed safe” could help achieve the country’s carbon neutrality goal by 2050.
In parallel, China’s government and leading nuclear companies appear to be committing to large-scale nuclear expansion following the country’s 14th Five Year Plan with some analysts expecting China to exceed US nuclear capacity before 2030.
Could the price rise too far?
And with Sprott’s buying spree looking like it won’t be stopping anytime soon – with now potentially more funds to use – analysts are predicting a continuation of uranium’s upward price trend.
The rising price could mean the start-up of more nuclear plants, with US$60/lb being the generally accepted price tag incentive.
However, as Morningstar analyst Travis Miller pointed out, these high prices could inhibit the global nuclear sector from future growth as it won’t be able to compete with cheaper forms of renewable energy.
“There’s a delicate balance here because in the long run, more supply should lead to lower, more stable prices. But in the short run, higher prices to bring on that supply is going to be a headwind,” Mr Miller said.